Is option backdating illegal dating in china

06 Aug

Your company is about to report spectacularly good news.You get a big grant of options just before the announcement. It depends, I learned Monday at a conference put on in Washington by Stanford Law School’s Rock Center for Corporate Governance.Clearly, the Enron trials have not closed the book on corporate fraud.A new boardroom scandal is roiling Wall Street: stock options backdating.

“What I’d tell a client is, ‘You have a very serious fraud problem, but I can help you,’ ” said David Becker, a former SEC general counsel who is now a partner at Cleary Gottlieb, when Grundfest questioned him on the legality of bullet dodging.Those options give John the right but not the on the date of the grant.The board formally grants the stock options to John every year at its January board meeting.Or “bullet dodging,” where a grant is delayed until after the announcement of some really bad news?Or timing releases of bad news to precede a regularly scheduled options grant–a practice for which there is apparently no nickname? All stemming from the practice known as “options backdating.” Options backdating occurs when a company issues stock options on one date, but reports in its financials an earlier issue date to create a “strike” or exercise price equal to the earlier date’s lower price.Another consequence is that the company underrepresents the real nature of an executive’s compensation, perpetuating the myth that options are performance-based incentive compensation.Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002.Although backdating had not yet been recognized as a problem, the provisions of Sarbanes-Oxley requiring that insiders report the acquisition of securities, including options, within two days of receipt greatly hindered the ability of corporations to backdate options.The backdating problem was first highlighted by Professor Erik Lie of the University of Iowa, who published his initial study in 2004.Professor Lie concluded that the robust profitability of so many options was statistically impossible absent some artificial influence such as backdating.